Coming soon: A lesson in unintended consequences.

Fairness in Lending Act

The Democrats have finally passed a law setting limits on interest rates and terms for small loans to poor credit risks. They think this will result in low income people getting less costly loans for emergencies, What will actually happen is that they will be unable to get emergency loans at all. If they really wanted to help, they would start a lending institution using their own money to make these loans on better terms and drive the ‘predatory lenders’ out of business through competition, until, of course, they ran out of money.

Those predatory lenders charged those rates for a reason.

But Democrats still think they can control the marketplace through force, and will have to learn that lesson over again many, many times before it sinks in.

18 thoughts on “Coming soon: A lesson in unintended consequences.

  1. The main consequence to expect will be a contraction of the credit industry. Indeed, the article reads like a public relations announcement written by one of the credit-selling firms likely to benefit.

    In terms of basic economics consumer credit is one of the most insidious of evils. Credit itself consists of the creation of money out of nothing. Create too much of the stuff, and the purchasing power of the instrument begins to decline. Common sense dictates that money should only be created when subsequently it will be used productively, that is, when new goods are created to represent the new monetary value. To the extent that consumer credit pays for consumption (hence the name) it breaks the rule.

    Doubly so, in fact. But in practice the whole transaction is complex and riddled with subtleties that sustain many an illusion of solvency.

    Easy access to credit needs a counterpart: Easy access to investment. I sometimes try to imagine an investment fund that poor people could buy into for two or three dollars a share. At relatively low vesting levels, the fund would provide weekly dividends sufficient to buy a six pack of beer, if one chose to cash them in. I would market it as if it were a lottery in which the price of a ticket obtained a permanent share of stock. The buyer could pick and choose the companies he wished to own a piece of, as well as buy and sell within the program to maximize his dividend earnings or total worth.

    If Virginia lawmakers wanted to help the poor, economics suggests they would be more wise to incentivize savings instead of debt.

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    1. There will be a lot more problems than that, as people lose jobs because they couldn’t get their car fixed, or get evicted because they fixed their car instead of paying the rent and couldn’t get a payday loan to bridge the gap.

      The rules the Democrats are imposing would leave payday lenders with barely enough to cover the cost of the paperwork, much less any profit and nobody puts money at risk if there is no profit.

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    2. RE: “There will be a lot more problems than that, as people lose jobs because they couldn’t get their car fixed, or get evicted because they fixed their car instead of paying the rent and couldn’t get a payday loan to bridge the gap.”

      No doubt. I remember them days in my own life.

      A conspiratorial cynic might guess that the whole point of the initiative is to gain social control over the captive population. But it doesn’t require conspiracy or cynicism to see that that will be the effect in any case.

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  2. Ya’all just love the idea of “credit slavery” which the high interest loans lead to. 36% is plenty for paperwork and overhead, of which there is very little need for any more due to on-line availability.

    I get it Don. The market can govern itself. But the consumers have NO support. It takes regulation to protect people at times … Even from themselves. But more so from predatory practices.

    And while the piece was written by a company that is likely to benefit, it doesn’t make it inaccurate.

    As far as low cost investing, there was at one time a program called MyRA, a government program that you could invest only $5 a week into until it grew to a certain level and then it would be moved into a market based, vice government sponsored program. Naturally, because it was an Obama program, it was ended in July of 2017 by you-know-who.

    https://en.wikipedia.org/wiki/MyRA

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    1. 36% on a $500 payday loan is $.49 a day for loans that are usually less than 10 days.

      That will not cover the cost of making the loan even if there was no risk.

      But if you’re really that concerned about ‘credit slavery,’ assemble a company of like minded individuals and establish your own bank, using your own money, to make short term loans to poor credit risks at low rates.

      But until you provide a better alternative, don’t deprive people of emergency credit they might desperately need.

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    2. RE: “Ya’all just love the idea of ‘credit slavery'”

      Can’t speak for Dr. Tabor, but I’m more in love with the idea of personal agency, which the regulation will compromise.

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      1. But you have to understand that to liberals, poor people are like mindless children unable to make their own decisions who need to be guided and protected by their betters.

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        1. …”poor people are like mindless children unable to make their own decisions “…

          Looks more like a description of the ever-shrinking Trump base.

          It is NOT about guiding and protecting. It is about making it possible for those who need a hand UP, get it fairly and without being preyed upon by unscrupulous lenders.

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          1. Well, if you’re determined to give them that hand up, I assume you will be putting YOUR retirement savings to make loans to replace those which will become unavailable.

            Otherwise you’re just taking a choice away from them.

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          2. I’m not the one intruding into a functional marketplace.

            Those fees and rates are what make those loans possible. If it could be done cheaper, someone would already be doing it to capture market share.

            What you are doing, unless you provide an alternative, is dooming those people to job loss or eviction when an emergency comes along.

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      2. RE: “Then we can agree to disagree.”

        Sure, but I’m at a loss to understand what the basis for disagreement might be. It is predictable that the number of lenders will decrease. The people who need or want the loans will have fewer options, meaning less personal agency.

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        1. …” will have fewer options”…

          More options do not always translate into better choices. The disagreement lies in that you (and Don) don’t think consumers should be protected. I do. Not all regulations are good, but not all are bad either.

          Don’s argument tends to be that deregulation of everything is the only way forward and the market will take care of itself. In theory, the market will take care of itself, at the expense of those who have little to no choice.

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  3. …” they would start a lending institution using their own money”…

    That makes little sense. If they HAD the money to start their own institutions, they wouldn’t need the emergency loans in the first place. People that live paycheck-to-paycheck (been there done that. Can YOU say the same?) rarely have the money to put away for a rainy day fund in the first place. Now you want them to start some unicorn loan institution with money they don’t have? SMH?

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    1. I didn’t say the poor people should start their own bank, I’m saying that well-to-do liberals who think it’s a good idea to take away that choice pony up the money to offer an alternative.

      Liked by 1 person

  4. High interest loans are not the problem with high risk credit risks, their spending habits are the problem. Easy low interest loans equals mounds of debt they can’t and won’t pay and then you hear liberals claiming a “wealth gap” exists. I have a spendthrift daughter I am desperately trying to teach that concept to right now before she gets in over her head. I hate high interest loan providers but I understand their reasoning. The part I hate most is their exorbitant late fees. A similar organization that chaffs my behind that’s does the same thing is the city treasurer but they have the force of law to get you to comply. Strange that government claims to protect you from predators while being a predator themselves.

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